I know you’ve been asking about coin pairing for a while, and although it’s taken some time, here we are.
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So, coin pairing is like mating two currencies together so you can see their value. After all, if we didn’t compare things to other things, we wouldn’t know how much anything is worth, and we’d be trading lawnmowers for Lamborghinis. For example, we’ve got the oldest pairing in the book: gold and the dollar. We know that one ounce of gold is worth over $1700 right now because we’ve determined their value relative to each other over a great deal of time. And as times changed, so did their comparative value. Now that we have cryptocurrency, we can do the same thing in that space.
So I don’t waste your time; I want to get into the nitty-gritty of coin pairs, so there’s a complete understanding when you walk away from the conversation. So, therefore, we’re going to talk more about coin pairs, why exchanges offer them and do they have any further use besides easy trading and comparative value.
Spoiler alert: yes, they do.
Let’s get it.
A coin pair consists of a base and quote coin. The base coin is what you have in hand, let’s say a dollar. And the quote coin is what you want to buy. So, you purchase the quote coin with your base coin. Simple enough. For example, you buy one Bitcoin by trading $41,395.30 at the current rate. Now, you can do that all day: buy different coins with USD (fiat money), but if you want to be agile with your trades, you’ll want a better pairing than BTC/USD. Therefore, you can buy what are called stablecoins.
Stablecoins are crypto pegged to the U.S. Dollar (there are also some pegged to gold) and give you the stability of your dollar with the agility of trading crypto to crypto on an exchange. A popular coin pairing is BTC/USDT. USDT is called Tether and pegged to USD. So, you buy USDT with your USD, and now you have a safe base of operations from which you can strike out and make some sweet trades for good gains. There are several stablecoin offerings, but I’m using USDT as it’s considered the most popular. Also, there are coins like PAX, which is a gold-backed stablecoin. Okay, so you’re in the exchange with your stablecoin (think of stablecoins as stores of value akin to bonds and gold in traditional markets). Now, depending on the exchange, you can see which coin pairs are available to you.
Most big exchanges offer vast if not all coin pairs. Coinbase, Uphold, and Binance, to name a few. However, not all of them do, such as Bithumb, so obviously, you’ll want to do some research on different exchanges to see which ones give you the most flexibility. For example, Upholds front page of their website states, “Anything to anything.” But, always do more digging because everybody likes to toot their own horn. So, be careful. Still, you’re going to be safe when using one of the ones I mentioned above. Now, for most people, this would be the end of the story. You know what a coin pair is and why they exist and how to see if an exchange has the pairing you want, but there’s another level that only experienced traders should explore, and that’s arbitrage trading.
Arbitrage trading is where you can trade your base coin for a quote coin on another exchange or triangle trading on the same exchange. You would want to do this because the quote coin prices might differ on different exchanges, or with clever projections, you can make multiple sells and buys with more of your original currency at the end.
Let’s say you have no BTC and $1000 in USDT. You see a dip coming for BTC, and you set your buy orders, and you purchased 0.1 BTC. Next, when BTC begins its climb, you place your sell orders. When you’re done, you end up with 0.2 BTC or $2000 if you trade it back over to USDT.
Nice.
That’s how an easy trade would go, but suppose you’re more adventurous. And you sell your USDT for BTC. Then, sell your BTC for ETH and back to BTC in a move that nets you a profit. Yes, you need trading ninjitsu to work those angles. That’s triangle trading.
Trading across exchanges is the same premise. You’re looking for a profit through trade with price differences. Typically, those differences might not last long, so you need to know what you are doing and act fast like a marsupial.
That’s it. That’s the basics of coin pairs. It’s something everyone who’s getting into crypto trading needs to know. But, not something you need to know unless you are training to be a wizard, Harry. So, now you know what a coin pair is, that they exist providing relative value, make trading of coins easier, and contain a trading mini-game called arbitrage.
There are coin pairings that are better than others, and you can research that on your exchange of choice. So, remember the ones I mentioned or find a reputable source yourself, but be careful. Scams are everywhere.
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